Despite improved Kumtor ops outlook, Centerra’s stock falls on Kyrgyz uncertainty

VANCOUVER (miningweekly.com) – Canadian gold miner Centerra Gold on Monday lost 6.52% in early trading on the TSX after releasing third-quarter results before market open, as the company’s inability to use substantial cash generated from its flagship Kumtor mine, in Kyrgyzstan, weighed on investor sentiment.

Toronto-based Centerra said subsidiary Kumtor Gold Company (KGC) is restricted by an interim order of the Bishkek interdistrict court from transferring property or assets, declaring or paying dividends or making loans to Centerra.

While the order does not forbid KGC from continuing to use its cash resources to operate the Kumtor mine, cash generated from the Kumtor project continues to be held in KGC and is not being distributed to Centerra. The interim order intends to secure KGC’s potential liability for a claim brought by the Kyrgyz Republic State Agency for Environmental Protection and Forestry.

As a result, KGC held $121.6-million in cash as at September 30. Centerra has deferred declaring its dividend owing to its inability to access cash generated by the Kumtor mine. It will revisit its dividend policy at the next regularly scheduled board meeting in December.

Centerra believes its cash at hand, cash from the company’s existing credit facilities, and cash flow from the newly acquired Mount Milligan gold/copper mine, in British Columbia, will be enough to fund its expected operating cash requirements through to the end of 2017, although there can be no assurance of this.

Without access to cash held by KGC, Centerra expects that it will be required to raise financing to fund construction and development expenditure on its development properties, or to defer such expenditures.

Centerra’s cash, cash equivalents and short-term investments at the end of the third quarter amounted to $479-million (excluding cash restricted in the Kyrgyz Republic, and the proceeds from the offering of subscription receipts, which was completed in connection with the acquisition of Thompson Creek and held in restricted cash), compared with $542-million at December 31, 2015.

The pro-forma cash, cash equivalents and short-term investments giving effect to the acquisition of Thompson Creek as at September 30, amounted to $106-million (excluding the cash restricted by the Kyrgyz Republic court order). This amount gives effect to the payments made to discharge or redeem the outstanding Thompson Creek senior secured notes.

Centerra said it continued discussions with the Kyrgyz Republic government with a view to resolving all outstanding matters affecting the Kumtor project, including removal of the restriction on cash held by KGC.

On October 20, Centerra closed the acquisition of Thompson Creek Metals for $1.03-billion, giving it control over the Mount Milligan mine, as well as two mothballed molybdenum mines.

DEVELOPMENT DELAY
Centerra also announced that it now expected first gold production from its Turkey-based Öksüt development project a year later than previously planned in mid-2018.

The company explained that, following approval of the business opening permit from local authorities in December 2015, applications were submitted for the land-use permits (forestry and pastureland). On July 14, Centerra’s Turkish subsidiary Öksüt Madencilik Sanayi ve Ticaret received the forestry use permit for the project; the operation permit for forestry area was obtained on August 26.

However, the pastureland permit is currently outstanding and the company is working with the relevant agencies to obtain the permit, for which there are no assurances that it will be approved in a timely manner, or at all, the company stated.

Even if the pastureland permit was received in the fourth quarter, the company would not expect to begin construction activity at the Öksüt project until April 2017, owing to the arrival of the winter season pushing first production out by about 12 months from initial estimates.

Further, Centerra said it continued discussions with the Mongolian government regarding finalising definitive agreements relating to the Gatsuurt project in the current quarter, while drilling on the property continues in anticipation of project development.

Q3 RESULTS
Centerra has increased Kumtor’s 2016 production forecast from the July forecast of between 500 000 oz and 530 000 oz, to the latest forecast of between 520 000 oz and 560 000 oz. The latest 2016 production forecast assumes no gold output from the Boroo or Gatsuurt mines, in Mongolia, or Öksüt, in Tukey, which is in the permitting phase.

Consolidated all-in sustaining costs (AISC) are also expected to fall to between $666/oz and $718/oz, from the previous forecast of $716/oz to $772/oz.

Centerra reported net earnings of $66.9-million, or $0.28 a share, in the third quarter, compared with a net loss of $18.1-million, or $0.08 a common share, for the same period in 2015. The improved outlook and earnings reflect the processing of higher-grade material from cut-back 17 at Kumtor, as well as from a 19% higher average realised gold price of $1 336/oz in the period. The net profit also benefited from an inventory impairment reversal of $15.4-million ($0.06 a share), while the comparative period in 2015 included a noncash goodwill impairment charge of $18.7-million ($0.08 a share).

Centerra produced 166 030 oz of gold at Kumtor at an AISC of $555/oz sold during the third quarter.

Revenue in the period rose 90% to $220.2-million from $116.2-million in the comparable period of 2015, as a result of 59% more gold ounces sold at 164 847 oz, and higher average realised gold prices.

Centerra’s TSX-listed stock fell to a low of C$6.59 a share on Monday, having traded relatively flat over the past ten months.